CMA CGM's 2013 profit boosted by terminal sale

CMA CGM, the third-largest container carrier in the world, said it had a net consolidated profit of $408 million in 2013, 22.8 percent more than the $332 million it earned in 2012.
The company’s bottom line was boosted by about $200 million due to one-time events, including the sale of a 49-percent share of its terminal business, Terminal Link, to China Merchants Holdings (International) Co. Ltd. and a revaluation of some terminals, said Chief Financial Officer Michel Sirat during a press conference Monday.
Sirat said the start of 2013 was better than the end-of-the-year results, with the company experiencing a loss in the fourth quarter of 2013 of $26 million.
“The last year-and-a-half has been extremely volatile, to say the least. So, we are very cautious in our assessment of profitability,” Sirat said. “We see the same market trends in 2014 as 2013, both in terms of volumes and in terms of price. We know we have the same strategy, and thus we expect the same profitability.”
The Marseilles, France-based carrier said revenue was flat, at $15.9 billion in 2013, down 0.1 percent from 2012 despite a weaker freight rate environment.
Volumes carried by CMA CGM rose to 11.4 million TEUs, a 7.5-percent increase over 2012, more than double the overall market, where volumes increased by about 3 percent over the year.
The company said it saw a decrease in average revenue per TEU of 7.1 percent, but Sirat said that was less than the 13-percent decline in the corresponding Shanghai Containerized Freight Index.
Sirat said the company was able to reduce its unit costs by about 5 percent and noted its operational margin, at 4.8 percent, was “one more year of one of the best performances in this industry.”
CMA CGM’s core earnings before interest and tax, or EBIT, (before disposals and impairment charges) was $756 million in 2013, compared to $1.03 billion in 2012.
“In 2013, in a difficult market, we successfully reduced our costs while increasing our volumes carried much faster than the market, enabling us to report one of the industry’s best financial performances,” said Rodolphe Saadé, CMA CGM's executive officer, in a statement. “We are committed in 2014 to maintaining our profitability and driving faster growth.”
Despite an initial upturn in freight rates at the beginning of the year, the company said it believes rates will remain under pressure throughout the year given the persistent mismatch between supply and demand.
It said it will continue to deploy a strategy “combining financial discipline and assertive marketing, which should enable it once again to deliver a significantly better operating performance than its peers.”
CMA CGM said it's “especially focusing on fast-growing regions with the launch of new services and the development of port infrastructure. This is notably the case in Africa with the strengthening of its lines, the development of overland corridors and the opening of new agencies and logistical terminals.”

Sirat

Sirat said about 50 percent of the company’s business is in the major east-west trades, and it had stronger growth in 2013 than in the North-South trades. The company plans to enter into a new global vessel-sharing alliance in the east-west trades with Maersk and Mediterranean Shipping Co. -- the so-called P3 Network -- in July, pending regulatory approval.
In March, members of the U.S. Federal Maritime Commission voted to let the P3 Network move forward, and Sirat said CMA CGM expects a decision from European and Chinese regulators in the coming weeks.
The P3 also needs approval from regulators in several other countries, the company said, including Japan, South Korea, Taiwan, Vietnam, Israel, Germany, Poland, Ukraine and Canada, but Sirat expressed confidence that they will be approved.Business Korea, said last week that South Korean shipping companies expressed concerns about the P3, reporting the Korea Shipowners' Association submitted a petition of South Korea's Fair Trade Commission on March 3, claiming the P3 Network corresponds to a merger and acquisition for restricting competition.
CMA CGM said its fleet of containerships grew from 414 ships with 1,446,000 TEUs of capacity in 2012 to 428 ships with 1,556,000 TEUs of capacity by 2013. Sirat said the company is ordering new ships and its order book is “in sync” with the market.
The company has six ships on order that were originally going to have capacities of 16,000 TEUs each that have now been enlarged to 17,700 TEUs. Another 23 ships with 9,000 TEUs of capacity will be chartered long term from shipyards or other Chinese companies. Sirat said about 66 percent of the company’s ships are chartered and 34 percent owned.
“The new long-term chartering agreements we signed in China is a new category of very long-term chartered vessels of large size which is not something we have done historically. For us the biggest vessels are owned and smaller vessels are chartered, but there are a few exceptions,” Sirat said. “So we are creating a third category through this agreement, but it is too early to say or to know whether... this is going to be a structural trend meaning that the Chinese shipyards would continue to finance the new buildings.”
Sirat said the company does not anticipate problems at ports handling its largest ships, including on the U.S. West Coast. A company spokesman noted its 13,800-TEU ship CMA CGM Corte Real has made two test calls to the West Coast, but no 14,000-TEU ships are actually deployed on the U.S. trade, yet.
CMA CGM said it's benefiting from the growth in its energy-efficient refrigerated container fleet, which should account for half of its total reefer fleet by year-end, or around 48,000 units. It noted refrigerated boxes “make it possible to containerize certain product categories that previously had to be carried bulk.”
Sirat said overall the company has improved its financial flexibility in 2013, reducing debt 20 percent to $3.7 billion and increasing liquidity with cash available at the end of last year of more than $1.5 billion.
He added that in container shipping “size is more and more important. We have the right size; we have the right fleet, a very modern fleet; and we have the right commercial attitude, I would say, of reactivity in a very volatile market. We are able to make the most of commercial opportunities which could arise.”
He also believes the company has the “appropriate strategy in this market environment—we continuously seek to have the lowest break-even point; we want to improve our services and accordingly be able to improve our operational margin; and have a prudent investment policy and cash management.”
Sirat said the company is managing costs through hundreds of small initiatives, from bunkering and chartering to operational management. As examples, he noted the company has replaced bulbous bows on its largest ships to reduce bunker consumption and is revamping its SAP computer system to increase efficiency.
He said most of CMA CGM’s cost-cutting activity is not related to the service of customers, but aimed at improving efficiency of the company’s internal processes, back office or reducing costs such as fuel.